Question

The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units to be produced	12,000	15,000	14,000	13,000

In addition, 15,000 grams of raw materials inventory is on hand at the start of the 1st Quarter and the beginning accounts payable for the 1st Quarter is $6,200.

Each unit requires 5 grams of raw material that costs $1.80 per gram. Management desires to end each quarter with an inventory of raw materials equal to 25% of the following quarter’s production needs. The desired ending inventory for the 4th Quarter is 5,000 grams. Management plans to pay for 60% of raw material purchases in the quarter acquired and 40% in the following quarter. Each unit requires 0.40 direct labor-hours and direct laborers are paid $13.50 per hour.

Required:

1.&2. Calculate the estimated grams of raw material that need to be purchased and the cost of raw material purchases for each quarter and for the year as a whole.

3. Calculate the expected cash disbursements for purchases of materials for each quarter and for the year as a whole.

4. Calculate the estimated direct labor cost for each quarter and for the year as a whole.

Answer 1

1.&2. Calculate the estimated grams of raw material that need to be purchased and the cost of raw

Particulars	Q1	Q2	Q3	Q4	Total year
Units to be produced	12000	15000	14000	13000	54000
R.M required per unit (gram)	5	5	5	5	5
Total production need (rw )	60000	75000	70000	65000	270000
Add: Desired ending R.M inventory*	18750	17500	16250	5000	5000
Less: Beginning R.M inventory	15000	18750	17500	16250	15000
R.M purchase required	63750	73750	68750	53750	260000
Cost of R.M per gram	$1.80	$1.80	$1.80	$1.80	1.80
Cost of R.M to be purchased	$114750	$132750	$123750	$96750	$468000

.

*Desired ending R.M inventory = 25% of the following quarter’s production needs

.

3.   Calculate the expected cash disbursements for purchases of materials for each quarter and for the year as a whole.

Particulars	Q1	Q2	Q3	Q4	Total year
Cost of R.M to be purchased	$114750	$132750	$123750	$96750
Payment made for the month of:
Last year's Q4	6200				6200
Q1	68850	45900			114750
Q2		79650	53100		132750
Q3			74250	49500	123750
Q4				58050	58050
Cash disbursement for R.M	$189800	$258300	$251100	$204300	$435500

.

Payment of RM purchase = 60% in the same Quarter & 40% in the following quarter

.

4. Calculate the estimated direct labor cost for each quarter and for the year as a whole.

Particulars	Q1	Q2	Q3	Q4	Total
Units to be produced	12000	15000	14000	13000	54000
Labor hour required per unit	0.40	0.40	0.40	0.40	0.40
Total Labor hours required	4800	6000	5600	5200	21600
Labor rate per hour	$13.50	$13.50	$13.50	$13.50	$13.50
Labor cost	$64800	$81000	$75600	$70200	$291600